Takeover-Target Stocks Near Their 52-Week Lows

by: Marc Courtenay

Jimmy Rogers, the legendary hedge fund trader and billionaire, said he waits patiently until something he wants to buy is so cheap and so "overlooked" that all he has to do is "walk over and pick it up."

There were times when Mr. Rogers' "cheap pickings" were hard to find or weren't quite cheap enough. He's often said in interviews that he had to be extraordinarily patient to find the best opportunities.

Some investors and traders are looking for the obvious. They wish they could look at market volume leaders, which as I write this happen to be Bank of America (NYSE:BAC) and Sandridge Energy (NYSE:SD),and buy the ones that would be the most profitable.

As the 16th century English proverb states, " If wishes were horses, beggars would ride." But wishes don't cut it. Careful investigation and time-consuming analysis does when it comes to finding hidden stock market "gems."

Sandridge made quite a splash Thursday (Dec.22) when it announced that it will receive $1 billion for a portion of its interest in oil acreage in western Kansas.

It is starting a joint venture with Spanish energy company Repsol YPF (OTCQX:REPYY). The deal includes Repsol getting a 25 percent interest in one spread of land controlled by SandRidge and a 16 percent interest in another.

If you had owned shares of SD before the announcement, and you happened to be fortunate enough to buy it when nobody seemed to want it on the October 4, 2011, intraday low price of $4.55 per share, you could have sold it today, Dec.23, 2011, for nearly a 100% profit at $9.

So the key to finding either takeover-target stocks or the next Sandridge Energy, is to look where few are looking and buy some companies that have intrinsic value but haven't hit the big trading desks' "radar screen."

Today's Super-Cheap Stocks that may be Tomorrow's Takeover Stocks

At the present time, many of those kinds of companies are found specifically in the silver producing area of the basic materials sector.

Companies like Hecla Mining (NYSE:HL), Silvercorp Metals (NYSE:SVM) and Alexco Resources (NYSEMKT:AXU) are current examples.

Some, like China-based Silvercorp, have some nasty problems to overcome. SVM has been the target of rumors alleging that it has reported earnings fraudulently, which the company has adamantly denied.

Those who have been spreading the rumors are now being investigated by the Chinese government for false reporting and fraud.

SVM has recently repurchased over $35 million of its own shares and also increased its dividend by 25%. As you look at the one-year chart, you can see that as recently as the beginning of May 2011 SVM shares were priced around $16.

When a company like SVM has no debt, $177 million in total cash, is reporting 65% operating margins and quarterly earnings growth (year-over-year) of nearly 49%, (assuming these statistics are mostly accurate), even Jimmy Rogers would take notice.

IAMGOLD (NYSE:IAG) is another "hidden gem" that's bouncing around near the bottom of it's 52-week price range. When you look at the key financial statistics I believe you can see that here's a company that's well worth "walking over and picking up."

IAG recently had good news that normally would make for a nice rally, but the entire precious metals production sector has been in a big slump due to worries that the European debt fiasco will cause prices to slump. The experts disagree!

IAMGOLD is a leading mid-tier gold mining company producing approximately one million ounces annually from five gold mines (including current joint ventures) on three continents.

This company is uniquely positioned with a strong financial position and extensive management and operational expertise.

To grow from this strong base, IAMGOLD has a pipeline of development and exploration projects and continues to assess accretive acquisition opportunities.

Its growth plans are strategically focused in West Africa, select countries in South America and regions of Canada. IAMGOLD also operates Niobec, a niobium mine in the Canadian province of Quebec.

This "fire sale" on precious metals producing or exploration companies is widespread. It even includes some of the best ones like Agnico-Eagle Mines (NYSE:AEM), which recently hit a new 52-week low.

AEM owns and produces some valuable mineral properties in Canada, Finland, and Mexico. The company primarily explores for gold, as well as silver, copper, zinc, and lead.

Its flagship property includes the LaRonde mine located in the southern portion of the Abitibi volcanic belt, Canada. The company was founded in 1953 and is based in Toronto, Canada.

AEM has had some tough breaks lately, but it has recently made some accretive acquisitions. AEM is currently selling at less than 12 times next year's earnings and pays almost a 2% dividend to boot. Take a close look at this company's website.

The list of takeover-target stocks near their 52-week lows includes some small ones like Exeter Resource Corp.(XRA), which the analysts at Casey Research carefully evaluated and declared "undervalued."

If XRA were to move back to its 52-week high of $6.50 from its recent low of $2.50, that would be a whopping gain of 160% for those who bought near that low price!

Finally, if you want to read a saga of how speculators can double or even triple their money by investing in these kinds of companies read about Australia's Sundance Resources Ltd (OTC:SUDCF).

All of the above mentioned companies are being impacted by end-of-year tax-loss selling on lower-than-normal volume. That historically sets the stage for a nice rebound after the first of the new year.

As the Bloomberg story on Sundance Resources reminds us, if a small company is in the process of being acquired but delays and snags have slowed the process, the price often corrects down and the upside potential soars.

Sundance still expects the deal to close by the end of May 2012. This suggests that traders buying the stock now could gain the biggest payout of any billion-dollar deal in the world, according to data compiled by the Bloomberg article referenced above.

"On an annualized basis, the 65 percent return balloons to 149 percent, the data show."

“You can’t find an investment that can give you such an upside,” said Alick Wong, a quantitative research analyst at Louis Capital Markets in Hong Kong."

Before the 2011 stock-trading year comes to a close, consider these possibilities carefully. Don't overdo it on any one of these companies and spread the risk around if you choose to speculate.

Many people talk about and write about these kinds of amazing potential rewards AFTER the fact.

From my own experiences with buying companies like ATAC Resources (OTCPK:ATADF) back when it was trading for around 40 cents per share, and eventually selling for a 5-fold profit, I know how exciting these situations are.

By the way an excellent article was written lately by Matt Badiali titled "There's a Fire Sale Taking Place in Elite Gold Stocks" that I recommend you read in conjunction with what I've shared with you in this article. It offers more compelling suggestions that deserve some Jimmy Rogers-like consideration.

Disclosure: I am long SVM, AXU, HL, IAG, AEM, XRA.